The European VC market is in turmoil. The number of capital venture deals in Q1 2023 fell by 19.2%, while their value fell by a whopping 32.1% quarter-over-quarter to just under 12 billion Euros.
VCs can no longer enjoy the low-interest rate environment of the past decade, with the European Central Bank (ECB) increasing key interest rates by 1.25% in 2023, making raising capital more costly. Investors are becoming risk-averse as well. The first quarter of 2023 hit European VCs with dry powder shortages, leading to an 8-year funding rate low of just 3.4 billion EUR.
Where 2022s fintech was considered one of the fastest-growing industries, its 2023 counterpart seems to suffer just as much as VCs. While the NASDAQ rose by 16.8% in Q1 2023, fintech stocks stayed flat, underperforming both the tech and finance sectors. Is the industry in decline, how and why is the sector turning from growth to profitability, and what does this indicate about the future?Current Affairs And Valuations
The alarm bell for fintech rang when TriplePoint Venture Growth and Schroders marked down their stakes in Revolut, suggesting that the privately traded neobank giant lost between 15% to 46% in its value. Schroders also slashed the valuation of its holdings in Atom Bank by 31%. The public market mirrored those private equity concerns as the EV/NTM Revenue median multiplier decreased to 1.9x in March, compared to 2022s annual of 4.2x. Projected revenues for 2024 were also reassessed at a lower value all over the sector.
Part of the market-specific reason for this decline is the extreme instability of the US regional banks. Although the post-SVB collapse period saw a 2% outflow of deposits from medium-sized banks implying a net positive for fintech as an alternative to conventional banking the real effect is double-edged. Most fintech companies dont have a banking charter, so they use sweep accounts that automatically redistribute fintech deposits to a network of partner banks.
The issue lies in the fact that most members of this network are the same mid-sized banks with the same vulnerability to systemic banking crises. In late April, Cross River Bank one of the largest banking partners for fintech firms got an FDIC enforcement order over its lending practices.
As if it wasnt enough, 2023 neobanks are now facing a fearsome newcomer in the form of tech giant Apple Inc.AAPL . It was easy to grow the customer base by offering high-yield savings accounts as the onboarding tool when the national average rates were at the extremely low rate of 0.39%. Now, fintechs have to compete with a 4.15% rate, backed by the reputation of a globally recognized and respected brand. While the offering is currently limited to the US, there is no certainty that European markets wont be next.From Growth To Profitability: Strategizing For The Future
Investor sentiment has also undergone a shift. Now they demand profitability over revenue growth, and the fintech industry is well aware. This is seen from changes in financial performance, with Starling and Revolut already having hit annual profitability and Bunq reaching quarterly profits for Q4 2022. Those who face unavoidable losses resort to communication, like when the Danish bank Lunar raised additional capital in February with the goal of shortening the path to profitability, or when Monzo reported being on track to profitability by the end of 2023.
The combination of broader economic and financial situations, fintech valuations, and market-specific conditions of early 2023 represent a changing trend from growth to profitability. Investors no longer tolerate high burn rates for profitless growth. They want early traction and fiscal prudence.
Uncertainty in the banking system, as well as Apples daunting market entrance, favors abandoning extreme reliance on attracting deposits as well as a paradigm shift to diversification. What worked well for growth doesnt for profitability, a notion backed by a McKinsey estimate for Western Europe which claims that daily banking costs to serve are almost two times higher than the revenue per holder.A Shift To Super Apps
As for what the future holds, I believe more companies will be exploring new niches, especially SME banking and B2B services; as well as a realignment towards leveraging data to transform personalized super-apps. The resilience of the one-stop-shop model is demonstrated by Revolut, Wise, and recent M&A activity. Even in a bearish market, diversified companies with multi-vertical integration like Nuvei secure gigantic exit valuations.
One example of this new fintech strategy shift is WeBank: the Chinese behemoth leverages its user base for activities with more lucrative profit margins such as loans. The company also cuts costs by using machine learning and collected client data to calculate risk and create customer profiles, which in turn led to record low ratios of non-performing loans. The outcome was a 36% rise in revenue and a 39% jump in profit in 2021.
Expect to see more in the way of self-sufficient super-apps, as this is precisely the case study most fintech startups are eyeing right now.
Hamas’s armed group has claimed it has lost contact with two hostages as a result of Israel’s operations in Gaza – after it called on air deployments to be stopped for 24 hours.
In a statement, Hamas’s armed al-Qassam Brigades said it had demanded that Israel halt air sorties for 24 hours, starting at 6pm, in part of Gaza City, to remove the hostages from danger.
It comes a day before Israeli Prime Minister Benjamin Netanyahu is due to meet US President Donald Trump and as the number of those killed in Gaza surpasses the 66,000 mark, according to the enclave’s Hamas-run health ministry.
Its figure does not differentiate between civilians and fighters.
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Volunteer nurse’s video diary of Gaza horrors
A total of 48 hostages are still being held captive by Hamas, the militant group which rules Gaza, with about 20 believed by Israel to still be alive. A total of 251 hostages were taken on 7 October 2023, when Hamas launched an unprecedented attack on Israel which killed 1,200 people.
Situation on the ground
In Gaza, a war-torn enclave where famine has been declared in some areas and where Israel has been accused of committing acts of genocide – which it has repeatedly denied – the almost two-year war raged on.
On Sunday, the number of those killed rose to at least 21 as five people were killed in an airstrike in the Al Naser area, local health authorities said, while medics reported 16 more deaths in strikes on houses in central Gaza.
The Civil Emergency Service in Gaza said late on Saturday that Israel had denied 73 requests, sent via international organisations, to rescue injured Palestinians in Gaza City.
Israeli authorities had no immediate comment. The military earlier said forces were expanding operations in the city and that five militants firing an anti-tank missile towards Israeli troops had been killed by the Israeli air force.
In Monday’s White House meeting, President Trump is expected to share a new 21-point proposal for an immediate ceasefire.
His proposal would include the release of all hostages within 48 hours and a gradual withdrawal of Israeli forces from the Palestinian enclave, according to three Arab officials briefed on the plan, the PA news agency reports.
A Hamas official said the group was briefed on the plan but has yet to receive an official offer from Egyptian and Qatari mediators. Hamas has said it is ready to “study any proposals positively and responsibly”.
Mr Trump, who has been one of Israel’s greatest allies, said on Sunday there is “a real chance for greatness in the Middle East”.
It is unclear, however, what Mr Trump was specifically referring to.
He said in a Truth Social post: “We have a real chance for Greatness in the Middle East. All are on board for something special, first time ever. We will get it done.”
On Friday – the same day a video of diplomats walking out on Mr Netanyahu during his address to the United Nations went viral – Mr Trump said he believed the US had reached a deal on easing fighting in Gaza, saying it “will get the hostages back” and “end the war”.
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Diplomats walk out as Israeli PM speaks at UN
“I think we maybe have a deal on Gaza, very close to a deal on Gaza,” the US president told reporters on the White House lawn as he was leaving to attend the Ryder Cup.
Mr Trump has repeatedly claimed an agreement to end the war was imminent, only for nothing to materialise.
Weeks ago, he said: “I think we’re going to have a deal on Gaza very soon.”
A person has been killed and several others injured after a mass shooting and fire at a Mormon church in Michigan, police have said.
Authorities said at a news conference that the suspect was shot dead by police officers, and that nine others were injured.
Two of those were said to be in critical condition, Grand Blanc Township Chief William Renye told reporters.
Image: Flames and smoke rising from the Church of Jesus Christ of Latter-day Saints in Grand Blanc. Pic: Julie J, @Malkowski6April / AP
He added that the suspect was a 40-year-old man from Burton, who drove his vehicle into the church and began firing rounds at the hundreds of people attending Sunday service.
The suspect used an assault rifle and deliberately started the blaze, Chief Renye said, before adding that officers believe they will find additional victims in the fire.
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Image: Pics: AP
The incident took place at around 11am local time at the Church of Jesus Christ of Latter-day Saints in Grand Blanc, about 50 miles north of Detroit.
In a statement on Sunday morning, Grand Blanc Township Police Department added that the church was “actively on fire” and urged the public to avoid the area.
Michigan governor Gretchen Whitmer said in a statement that “my heart is breaking for the Grand Blanc community” after the shooting.
She added: “Violence anywhere, especially in a place of worship, is unacceptable. I am grateful to the first responders who took action quickly.”
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Genesee County sheriff Christopher Swanson said at around 12.20pm (5.20pm in the UK) that the “entire church is on fire”, and confirmed that people who were at the church have been evacuated.
Around 20 minutes later, the police department said the fire had been contained.
Image: The incident took place at the Church of Jesus Christ of Latter-day Saints in Grand Blanc
US attorney general Pam Bondi also confirmed the FBI and the Bureau of Alcohol, Tobacco, Firearms and Explosives are responding to the incident.
US President Donald Trump said on Truth Social that “the suspect is dead, but there is still a lot to learn”, before saying the shooting “appears to be yet another targeted attack on Christians in the United States of America”.
He added: “PRAY for the victims, and their families. THIS EPIDEMIC OF VIOLENCE IN OUR COUNTRY MUST END, IMMEDIATELY!”
In the wake of the shooting and fire, the New York Police Department said it would deploy officers to religious institutions across the city “out of an abundance of caution”.
The incident occurred the morning after Russell M Nelson, the oldest-ever president of The Church of Jesus Christ of Latter-day Saints, died at 101.
Shootings reported in North Carolina, New Orleans, Texas
Meanwhile, authorities responded to a mass shooting at a coastal town in North Carolina late on Saturday, where three people were killed.
At least eight others were injured in that incident, where someone opened fire from a boat into a crowd at a bar.
Another shooting took place at a south Texas casino early on Sunday, with seven people shot and two killed.
A woman was also killed, and three others were injured in Bourbon Street, New Orleans, early on Sunday after a shooting.